The Two Most Confusing Phrases in Financial Aid

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There’s a lot of confusion and misinformation out there when it comes to college admissions and financial aid, and a lot of it surrounds terminology. One of the most common misunderstandings concerns a policy that most U.S. colleges now have: so-called need-blind admissions.

Peterson’s defines the term this way: If a school practices need-blind admissions, it means that there is an invisible wall between the admissions and financial aid offices such that admissions officers are unaware of your financial circumstances when they evaluate your application.

This is a good thing, of course — but it is very, very different from offering the kind of financial aid that can make attending college an affordable option.

The key is this: The fact that a college will admit you regardless of your financial need does not mean that they will provide the financial aid needed to make the college affordable. New York University, for example, offers need-blind admissions, but its students graduate with among the highest average debt loads of all schools in the country. What this means is that a large number of students are admitted but do not receive the financial aid to fill the gap between their means and the cost of attendance. The resulting gap is filled with loans.

(MORE: Be Skeptical of Colleges Providing Student Loan Assistance)

So remember: Don’t let the phrase need-blind admissions make you think a school is affordable. All that it means is that they’ll allow you the privilege of borrowing a bunch of money to pay tuition.

The other massively confusing phrase that you’ll hear from colleges is this: “We Meet 100% of Financial Need.” This means that the college will calculate your expected family contribution and then provide various forms of financial aid to meet the difference between that and the sticker price. There are a couple problems with this:

  • Just because the financial aid formula says you can afford to pay a certain amount doesn’t mean that you can. Only you can decide how much your family can afford to pay for college. The FAFSA formula, for instance, doesn’t include retirement savings in its calculation of expected family contribution (EFC). So if you have $1,000,000 in assets between your 401(k) and IRA, you very well might be able to pay more than your EFC. But if your retirement plan is starved, your true ability to pay for college is likely far, far below what the financial aid form will tell you you can pay.
  • The other problem is that there are three types of financial “aid”: grants, loans, and work-study. In my opinion, only grants should really be viewed as aid. Offering someone the ability to borrow money is not really helpful. And many schools will say that they meet all financial need but will then include significant student loans or parent loans in that package. It’s misleading. Can you imagine if a car dealer said “This car is free* *except for the $500 per month payment”?

(MORE: Demand for Student Loans and Car Loans Increases)

The bottom line is this: When you’re picking a college, you need to pay attention to the numbers, not the hype and the promises. Admissions officers, financial aid officers, and guidance counselors toss around lots of phrases that sound great. Many of them are nearly meaningless, and you have to ask questions: “You meet 100% of financial aid? So does that mean I’ll graduate without loans as long as my parents can make the expected family contribution?” If not, it’s complete garbage.